Strategies to maintain and build good credit, now and in the future

When it comes to financial wellness, the best approach is a proactive one, especially during uncertain economic times. Perhaps now more than ever, it’s important to take steps to protect, and build, credit. Here are a few strategies to build and maintain a favorable credit score now, and in the future:

Know the score.

Every great master plan begins with an honest assessment of the situation. In this case, that means understanding credit scores and history. Both are important, but they are not one in the same. Here’s the difference:

A credit score is a number between 250 and 900 depicting a consumer’s creditworthiness. The higher the score, the better. Those with excellent or good credit are more attractive to lenders when it comes time to secure financing to make a large purchase, such as a home or a vehicle. A poor credit score makes it extremely difficult to secure a loan.

A credit report is a financial history detailing how and when bills are paid, how much debt has been accumulated, and how long credit accounts have been established.

Build a new habit: Check credit reports regularly.

It may not be in the forefront of many consumers’ minds right now, but experts are encouraging everyone to be more vigilant about checking their credit reports during the pandemic. Experian offers this advice in an article titled Protecting Your Credit During the COVID-19: “Especially now, making sure your credit reports are accurate is critical. This way, you can identify any potentially fraudulent activity and respond to it before it damages your credit. You should check your credit reports with all three credit bureaus (Experian, TransUnion and Equifax).”

Credit reports can also be found at annualcreditreport.com. To help consumers during the Covid-19 pandemic, all three credit reporting agencies are offering weekly credit checks free of charge. Errors on credit reports can, and should, be corrected. Notify any of the three credit bureaus listed above if credit history is not accurate.

Common credit score services: FICO & Vantage.

Different lenders use different services to access credit scores. The most common are FICO (Fair Isaac Corporation) and Vantage. Beth Langston, Assistant Vice President & Branch Manager at Fidelity Bank in Mountain Top, sheds some light on the differences between the two scales:

• FICO Score Range

Excellent: 800-850

Very Good: 740-799

Good: 670-739

Fair: 580 – 669

Poor: Under 580

• Vantage Score Range

Excellent: 781-850

Good: 661 – 780

Fair: 601- 660

Poor: 500 – 600

Very poor: Under 500

 

The “good” category can be a critical range for some consumers. “Within this range, different lenders may view these scores differently,” Beth explained. “Some lenders look at your credit in that range to see if your score is 700 or better. When they see a score lower than 700, that’s when some lenders and credit card companies take more of a deep dive into your credit history to see why it’s not 700. Did you a miss payment? What caused this?”

How is a credit score calculated?

When working to build, improve, and maintain a favorable credit score, it’s important to know how credit scores are calculated. Beth provided an example of how the FICO score is determined:

• 35% — Payment history. This record shows whether credit card accounts have been paid on time, if they were late, or unpaid. This is why it is so critical to make monthly payments on time in the minimum amount or more, or to make payment arrangements immediately during times of hardship.
• 30% — Amount owed. This is the total amount of credit and loans a consumer is using compared to their total credit limit.
• 15% — Length of credit history. Well-meaning consumers who pay off credit cards they’ve maintained for years and then close their accounts can inadvertently lower their credit scores. It’s great to pay off the balance, but it’s a mistake to close the account. “Since the length of your credit history is 15% of your score, if the credit card you close out because you paid it off is your oldest credit card, you just made a ding against your credit because your credit history is now shorter than it had been,” Beth explained. When in doubt, consult with a Banker before closing accounts to be strategic about which ones remain open.
• 10% — New credit. Be mindful of how many credit applications are currently under review. “If lenders see that you’ve been applying for new accounts and opening new accounts recently, that could be a red flag,” Beth said. Don’t just apply for a credit card to get a one-time discount at a retailer if that means multiple applications will be open simultaneously. That discount could actually be costly in the end if it serves as a warning sign to a lender.
• 10% — Credit mix. “When lenders look at credit, we look at the types of credit you have. Is it mostly installment loans? Are you someone with a mortgage and then a home equity loan? That’s a better mix of products than if you have a lot of credit cards almost up to the limit, and you have a loan through a finance company at a 29% interest rate,” Beth said. This is another area in which a consultation with a Banker can be helpful because creating the right mix is important in building good credit.

Read the fine print. Ask questions.

How does a consumer know which scale a lender uses? Read the fine print on credit card statements, and don’t be afraid to ask lenders which service they use. Talk to a trusted Banker. They will be more than happy to help.

Also, keep in mind, even within these two scales, there are multiple versions of reports that can be pulled. It all depends on what criteria the lender uses to initiate their search. “You could be making 5 different purchases, and for each one, lenders are using a Vantage score, but they’re each using a different Vantage score,” Beth said. “Each creditor pulls your credit score using different criteria based on what they need through their experience with lending money.” Her advice to consumers to cope with this: “Make sure your bills are paid on time.”

In times of hardship, such as many people are experiencing due to the Covid-19 pandemic, paying bills on time can be a challenge. It’s much more difficult than trimming extraneous expenses from the budget, such as that pricey morning latte from the local coffee shop. Many people are recently furloughed, waiting on unemployment payments, and struggling to make those minimum payments. When cash flow is an issue, it’s time to start making phone calls.

Communication is key.

It’s not a phone call anyone wants to make, but it’s important to contact lenders and credit card companies immediately if it’s not possible to make a payment on time. Procrastinating will only make a difficult situation worse. Before the payment is due, call and explain the reason for hardship, and ask if they can help by reducing minimum payments or temporarily waiving fees. Many lenders, including Fidelity, have implemented client assistance programs for customers who have been financially impacted by Corona-19. Prior to making creditor calls, check out Credit Karma’s negotiation tips, gather statements, and be prepared to document each call in case follow-up is needed in the future.

Rely on a trusted Banker.

Beth encourages people to consult with their Bankers, too. “Sometimes people think they’re the only ones facing issues, and that’s not true,” she said. “Call your Banker and have a conversation about your finances. If you were sick, you wouldn’t have a problem going to your doctor, but when you have financial issues, it can be a little intimidating or embarrassing for people to go to their Banker and say, ‘I need help. I need you to help me figure out how to get back on track’.”

This is great advice in any economic climate – not just during times of national crisis. Bankers are here to help. “We talk to our clients about their overall financial picture,” Beth said. “It’s always wise to look at consolidating debt because that will free up money on a monthly basis that you can use to pay your utilities and other basic expenses that are really important. No one should ever think they’re alone. There are so many people with the same problems. Don’t feel intimidated about talking about it.”

Timeless credit-building strategies.

• Create a budget, and stick to it.
• Always pay bills on time, and pay at least the minimal monthly payment. In times of hardship, immediately contact lenders.
• If possible, make more than the minimum monthly payment on bills.
• Don’t close accounts with paid balances without consulting a trusted financial professional.
• Be strategic. Don’t open too many accounts at once.
• Those who need to establish credit should consider applying for a secured credit card through their bank. Simply open a secured savings account that is pledged as security for the new credit card account. Be sure to make monthly payments on time, and immediately start building credit.
• If possible, keep the first credit card that was opened.
• More tips: How to Understand and Improve Your Credit Score in Under 30 Minutes.

Learn More

Fidelity Bank has built a strong history as trusted advisors to customers served, and is proud to be an active member of the communities it serves. With branches located throughout Lackawanna and Luzerne Counties, and the Lehigh Valley, Fidelity Bank offers full-service Trust & Investment Departments, a mortgage center, and an array of personal and business banking products and services. The Bank provides 24 hour, 7 day a week service to customers through a variety of digital banking tools, branch offices, online at www.bankatfidelity.com, and through the Customer Care Center at 1-800-388-4380.